NIOS Class 12 Accountancy Chapter 34 Cash Flow Statement

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NIOS Class 12 Accountancy Chapter 34 Cash Flow Statement

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Cash Flow Statement

Chapter: 34

Module – 6: Analysis of Financial Statements

INTEXT QUESTIONS 34.1

Fill in the blanks with suitable word/words:

(i) Cash flow statement deals with flow of cash which includes cash and ________.

Ans: Cash equivalents.

(ii) Cash flow statement is a ________ statement.

Ans: Financial.

(iii) Cash flow statement shows ________ and ________ during a particular period.

Ans: Cash inflow, Cash outflow.

(iv) As per AS 3 (revised), cash fund includes cash, demand deposit with bank and _________.

Ans: Cash equivalent.

Intext Questions 34.2

Fill in the blanks with appropriate

word/words :

(i) Only __________ companies prepare cash flow statement.

Ans: Listed.

(ii) Cash flows are classified in to three parts i.e. operating activities, financing activities and ________ activities.

Ans: Investing.

Intext Questions 34.3

Classify the following items into (i) Operating (ii) Investing and Financing activities.

(i) Refund of income tax.

Ans: Operating activities.

(ii) Payment of dividend to shareholders.

Ans: Financing activities.

(iii) Purchase of land and building.

Ans: Investing activities.

(iv) Purchase of plants.

Ans: Investing activities.

(v) Interest paid on debentures.

Ans: Financing activities.

Intext Questions 34.4

Fill in the blanks with suitable word/words :

(i) Provision for taxation is _______ expenses.

Ans: Non operating.

(ii) Increase in share capital is _________.

Ans: Cash inflow.

(iii) purchase of fixed assets is ________.

Ans: Cash outflow.

(iv) Redemption of debentures is _______.

Ans: Cash outflow.

(v) Sale of fixed assets is ________.

Ans: Cash inflow.

(vi) Issue of debentures is __________.

Ans: Cash inflow.

TERMINAL EXERCISE

1. What do you mean by Cash Flow Statement? State main objectives of cash flow statement.

Ans: Cash Flow Statement is a statement which shows the inflow and outflow of cash and cash equivalents during a particular period. It is a summary of receipts and disbursements of cash and explains the reasons for changes in the cash position of the business. It helps in assessing the capability of the enterprise to generate cash and utilise it effectively.

Objectives of Cash Flow Statement:

(i) To highlight the cash generated from operating activities.

(ii) To help in planning the repayment of loans and replacement of fixed assets.

(iii) To serve as a basis for future investing and financing plans of the enterprise.

(iv) To ascertain the liquidity position of the firm in a better manner.

(v) To help in efficient and effective management of cash.

(vi) To know the internally generated cash available for payment of dividends.

(vii) To present separately the cash flows from operating, investing and financing activities.

(viii) To evaluate the overall cash position of the business.

2. Define cash as per AS-3 (revised). How the various activities are classified as per AS-3 revised while preparing cash flow statement.

Ans: As per AS-3 (Revised), cash includes cash in hand, demand deposits with banks and cash equivalents. Cash equivalents are short-term, highly liquid investments which are readily convertible into cash and are subject to insignificant risk of change in value.

The activities are classified into three categories:

(i) Operating Activities: These are the principal revenue generating activities of the enterprise. They include cash receipts from sale of goods and services and cash payments for operating expenses.

(ii) Investing Activities: These include acquisition and disposal of long-term assets and investments not included in cash equivalents.

(iii) Financing Activities: These are activities which result in changes in the size and composition of the owner’s capital and borrowings of the enterprise.

3. Give three examples of operating activities.

Ans: (i) Cash receipts from sale of goods and rendering of services.

(ii) Cash payments to suppliers for goods and services.

(iii) Cash payments to employees as wages and salaries.

(iv) Cash payment or refund of income tax.

4. Give two examples of investing activities.

Ans: (i) Purchase of fixed assets such as land, building, machinery, etc.

(ii) Sale of fixed assets or investments.

(iii) Purchase of investments like shares and debentures.

(iv) Loan made to outsiders.

5. From the following Balance Sheets of X Ltd., prepare Cash Flow Statement:

Particulars	Note No.	31st March, 2014 (₹)	31st March, 2013 (₹)
I. EQUITY AND LIABILITIES
1. Shareholders’ Funds
(a) Share Capital	1	2,00,000	1,80,000
(b) Reserves and Surplus	2	6,400	6,000
2. Non-Current Liabilities
Long-term Borrowings:
10% Debentures		14,000	12,000
3. Current Liabilities
(a) Short-term Borrowing (Bank Overdraft)		13,600	25,000
(b) Trade Payables (Creditors)		22,000	24,000
(c) Short-term Provisions	3	20,000	16,000
Total		2,76,000	2,63,000
II. ASSETS
1. Non-Current Assets
Fixed Assets	4	1,50,000	1,60,000
2. Current Assets
(a) Trade Receivables		48,000	40,000
(b) Inventories		71,000	60,600
(c) Cash and Cash Equivalents		7,000	2,400
Total		2,76,000	2,63,000

Notes to Accounts

Particulars	31 March, 2014 (₹)	31 March, 2013 (₹)
1. Share Capital
Share Capital	1,80,000	1,55,000
10% Preference Share Capital	20,000	25,000
Total	2,00,000	1,80,000
2. Reserves and Surplus
General Reserve	4,000	4,000
Surplus i.e., Balance in Statement of Profit & Loss	2,400	2,000
Total	6,400	6,000

3. Short-term Provisions
Provision for tax	8,000	5,000
Proposed Dividend	12,000	11,000
Total	20,000	16,000
4. Fixed Assets
Cost	1,80,000	1,82,000
Less : Accumulated Depreciation	30,000	22,000
Net Fixed Assets	1,50,000	1,60,000

Ans: Cash Flow Statement of X Ltd. for the year ended 31st March, 2014

Particulars	Details (₹)	Amount (₹)
A. Cash Flow from Operating Activities
Increase in Surplus (Profit & Loss A/c)		400
Add: Non-Cash and Non-Operating Items:
Provision for Tax	8,000
Proposed Dividend	12,000
Depreciation	8,000
Interest on 10% Debentures	1,200
Preference Dividend	2,500	31,700
Operating Profit before Working Capital Changes		32,100
Less: Increase in Trade Receivables	(8,000)
Less: Increase in Inventories	(10,400)
Less: Decrease in Trade Payables	(2,000)	(20,400)
Cash Generated from Operations		11,700
Less: Income Tax Paid		(5,000)
Net Cash from Operating Activities (A)		6,700

B. Cash Flow from Investing Activities

Particulars	Amount (₹)
Sale of Fixed Assets	2,000
Net Cash from Investing Activities (B)	2,000

C. Cash Flow from Financing Activities

Particulars	Amount (₹)
Proceeds from Issue of Equity Shares	25,000
Redemption of Preference Shares	(5,000)
Proceeds from Issue of 10% Debentures	2,000
Repayment of Bank Overdraft	(11,400)
Dividend Paid	(11,000)
Preference Dividend Paid	(2,500)
Interest Paid on Debentures	(1,200)
Net Cash Used in Financing Activities (C)	(4,100)

Net Increase in Cash and Cash Equivalents

Particulars	Amount (₹)
Net Cash from Operating Activities (A)	6,700
Net Cash from Investing Activities (B)	2,000
Net Cash Used in Financing Activities (C)	(4,100)
Net Increase in Cash and Cash Equivalents	4,600
Add: Opening Cash and Cash Equivalents	2,400
Closing Cash and Cash Equivalents	7,000

Working Notes:

1. Depreciation

30,000−22,000=₹8,000

2. Sale of Fixed Assets

Cost of Fixed Assets:

Opening Balance = ₹1,82,000

Closing Balance = ₹1,80,000

Decrease in Cost = ₹2,000

Hence, Sale of Fixed Assets = ₹2,000 (assumed sold at book value).

3. Interest on Debentures

10%×₹12,000=₹1,200

4. Preference Dividend

10%×₹25,000=₹2,500

5. Income Tax Paid

Previous Year’s Provision for Tax = ₹5,000

6. From the following Balance Sheets of Human Kind Pharmaceuticals Ltd.

Particulars	Note No.	31st March, 2014 (₹)	31st March, 2013 (₹)
EQUITY AND LIABILITIES
1. Shareholders’ Funds
(a) Share Capital	1	2,40,000	2,00,000
(b) Reserves and Surplus	2	72,000	50,000
2. Current Liabilities
(a) Trade Payables		55,000	23,000
Total		3,67,000	3,23,000

ASSETS
1. Non-Current Assets
Fixed Assets:
(a) Tangible	3	1,50,000	1,40,000
(b) Intangible (Goodwill)		20,000	10,000
2. Current Assets
(a) Trade Receivables		1,60,000	1,30,000
(b) Inventories		20,000	18,000
(c) Cash		17,000	25,000
Total		3,67,000	3,23,000

Notes to Accounts

Particulars	31st March, 2014 (₹)	31st March, 2013 (₹)
1. Share Capital
Equity Share Capital	2,40,000	2,00,000
10% Preference Share Capital	50,000	50,000
Total	2,90,000	2,50,000

2. Reserves and Surplus
General Reserve	50,000	35,000
Surplus i.e., Balance in Statement of Profit & Loss	22,000	15,000
Total	72,000	50,000

3. Fixed Assets (Tangible)
Building	80,000	1,00,000
Plant	70,000	40,000
Total	1,50,000	1,40,000

Ans: Human Kind Pharmaceuticals Ltd.

Cash Flow Statement for the year ended 31st March, 2014

Particulars	Amount (₹)
(A) Cash Flow from Operating Activities
Net Profit (22,000 − 15,000 + 15,000)	22,000
Add: Depreciation on Building	20,000
Operating Profit before Working Capital Changes	42,000
Add: Increase in Trade Payables	32,000
Less: Increase in Trade Receivables	(30,000)
Less: Increase in Inventories	(2,000)
Net Cash from Operating Activities (A)	42,000
(B) Cash Flow from Investing Activities
Purchase of Plant	(30,000)
Purchase of Goodwill	(10,000)
Net Cash used in Investing Activities (B)	(40,000)
(C) Cash Flow from Financing Activities
Issue of Equity Share Capital	40,000
Net Cash from Financing Activities (C)	40,000
Net Decrease in Cash (A + B + C)	(8,000)
Add: Opening Cash Balance	25,000
Closing Cash Balance	17,000

7. From the following Balance Sheets Kammi Medical College & research Centre Ltd. as at 31st March, 2014 and 31st March, 2013, prepare Cash Flow Statement :

Particulars	Note No.	31st March, 2014 (₹)	31st March, 2013 (₹)
I. EQUITY AND LIABILITIES
1. Shareholders’ Funds
(a) Share Capital	1	16,00,000	10,40,000
(b) Reserves and Surplus	2	5,50,000	2,60,000
2. Non-Current Liabilities
Long-term Borrowings:
9% Debentures		4,00,000	6,00,000
3. Current Liabilities
Trade Payables		4,50,000	1,00,000
Total		30,00,000	20,00,000

II. ASSETS
1. Non-Current Assets
Fixed Assets		20,00,000	15,00,000
2. Current Assets
(a) Inventories		3,00,000	2,00,000
(b) Trade Receivables		2,00,000	1,00,000
(c) Cash and Cash Equivalents		5,00,000	2,00,000
Total		30,00,000	20,00,000

Notes to Accounts

Particulars	31st March, 2014 (₹)	31st March, 2013 (₹)
1. Share Capital
Equity Share Capital	15,00,000	10,00,000
7% Preference Share Capital	1,00,000	40,000
Total	16,00,000	10,40,000

2. Reserves and Surplus
Surplus, i.e., Balance in Statement of P & L	1,50,000	2,00,000
General Reserve	4,00,000	60,000
Total	5,50,000	2,60,000

Additional Information :

(i) During the year a machinery costing ₹ 20,000

(ii) Dividend paid ₹ 50,000.

Ans: Kammi Medical College & Research Centre Ltd.

Cash Flow Statement for the year ended 31st March, 2014

Particulars	Amount (₹)
(A) Cash Flow from Operating Activities
Net Profit	3,40,000
Add: Increase in Trade Payables	3,50,000
Less: Increase in Inventories	(1,00,000)
Less: Increase in Trade Receivables	(1,00,000)
Net Cash from Operating Activities (A)	4,90,000
(B) Cash Flow from Investing Activities
Purchase of Fixed Assets	(5,00,000)
Net Cash used in Investing Activities (B)	(5,00,000)
(C) Cash Flow from Financing Activities
Issue of Share Capital	5,60,000
Redemption of Debentures	(2,00,000)
Dividend Paid	(50,000)
Net Cash from Financing Activities (C)	3,10,000
Net Increase in Cash	3,00,000
Add: Opening Cash Balance	2,00,000
Closing Cash Balance	5,00,000

Working Note 1: Calculation of Net Profit

Particulars	₹
Closing P&L Balance (2014)	1,50,000
Add: Transfer to General Reserve	3,40,000
Add: Dividend Paid	50,000
Total	5,40,000
Less: Opening P&L Balance (2013)	(2,00,000)
Net Profit	3,40,000